The Potential for 100-Year US Government Debt

Immediately after assuming his post as Treasury Secretary, Steve Mnuchin began to discuss with his staff the prospect of issuing 50 and 100-year government bonds. This would mark a historic shift for the $14 trillion market, which has been resistant of issuing debt with maturities longer than 30 years. However, it seems as if the US will be following in the steps of Belgium, France, the UK, Austria, and Mexico, who all have sold longer-dated maturites.
Changes in US government bond issuance have previously been explored in depth with the Treasury consulting with investors and dealers, placing an emphasis on regular and predictable issuance to reduce financing costs. It took nearly three years for the Treasury to introduce floating-rate notes, first sold in 2014. The Treasury Borrowing Advisory Committee, a group of industry participants that advises on government debt issuance, is looking at issuance models and noted in minutes from its meeting on January 31 that longer-term strategies had historically performed better amid rising interest rates. The bond market expects the Federal Reserve will raise interest rates this summer and later this year.
Some primary dealers, which underwrite Treasury debt sales, have offered support for the idea but highlighted potential stumbling blocks. Mr Mnuchin stressed that he was not making any “formal announcement” on whether the Treasury would issue longer-dated bonds but he had “begun to talk to staff” about it. In comments before he took office he had indicated that he was open to the idea. The Treasury’s borrowing costs have risen since Donald Trump was elected president on November 8, with the 30-year yield rising from 2.6 per cent to 3 per cent on Thursday.


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